Buys Favoured On EuroStoxx 50 – Increasing Commodity Prices Supportive

European shares continue to tick up today, for the third consecutive day as commodities are holding steady around six-week highs and oil rallies.

Since the beginning of the week, a gauge of miners has witnessed a considerable gain within the 19 industry groups in the Stoxx Europe 50 Index. Base metals are enjoying a strong advance,which is supporting miner stocks. On Sunday (26/6), the head of China’s economic planning department, announced that the Chinese government planned to reduce 45 million tons of steel capacity and 280 million tons of coal production this year. This scheme would help tackle the base metal supply glut and help lift the steel price. Additionally, Morgan Stanley has upgraded its forecast for the fourth quarter iron ore price to an average of $35 per ton, compared with the prior forecast of $30 per ton.

Moreover, energy companies also climbed as crude oil scored a third-day of gains after the EIA reported the sixth straight weekly fall in crude stockpiles in the United States. According to the report from the US Department of Energy, U.S crude oil inventories decreased by 4.1 million barrels to 526.6 million barrels in the week ending on Jun 24. The slump was about twice as large as the 2.4 million-barrel contraction that was forecast by analysts.

Stoxx 50 shares were supported further as investors seemed to shrug off concerns over a interest rate hike by the Fed in July. The U.S. interest-rate outlook remains in focus as Federal Reserve Bank of St. Louis President James Bullard is due to speak on Thursday in London. In addition, investors will look for any indications about the next steps from the U.K. and the EU on the path to separation.

stoxx d1

Fig. Stoxx Europe 50 D1 Technical Chart

The STOXX50 index is on course to continue rising from the recent low of 2649.30, in an attempt to cover the big gap-down created on June 24. RSI (14) is pointing upwards from the oversold threshold, indicating that the bull is creeping in. The index is expected to inch up a little more and may pull back thereafter. The 38.2% level of Fibonacci retracement may be tested. Longs are encouraged in the short term.

Trade suggestion

Buy stop at 2844.87, Stop loss at 2793.90, Take profit at 2920.74

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